Editorial: TAPS milestone marked by drop in Slope oil prices

Post date:

Thu, 06/28/2012 - 1:45pm

June 20 was more than just the 35th anniversary of the first Prudhoe Bay oil flowing down the Trans-Alaska Pipeline System.

That day saw the second-lowest TAPS throughput of the month, at 457,127 barrels. Only a one-day curb in production from the major fields at Prudhoe and Kuparuk when a mere 380,893 barrels flowed on June 2 was lower.

The same day, Alaska North Slope crude fell nearly $4 to trade at a 52-week low of $96.40, a drop of more than $31 per barrel from its 52-week high of $127.90 set Feb. 24.

Oil prices declined sharply across the board June 20 on the weekly inventory report from the U.S. Department of Energy that showed a 2.9-million barrel increase in crude stockpiles when analysts had been expecting a decline of 1 million barrels.

The euro continues to weaken against the U.S. dollar — driving commodity prices down further — as the continent teeters between a recession and a full-on financial crisis.

The U.S. also appears at risk of a “double dip” recession after the economy added only 69,000 jobs in May and first quarter gross domestic product growth was revised downward from an anemic 2.2 percent to an even sicklier 1.9 percent annual rate.

Neither the jobs data nor GDP are enough to keep pace with population growth, let alone come near reducing an unemployment rate that has stayed greater than 8 percent for 40 straight months.

What this confluence of events brings into sharp focus, if it wasn’t already clear enough, is the failure of the state’s political leaders over the past two years to do anything to prepare Alaska for the day when high oil prices can’t offset the declining production from the North Slope.

North Slope crude must trade at least $100 per barrel or more to balance the state budget, which reveals the house of cards that is Alaska’s oil tax regime — an unsustainable rate of production requires an unsustainable price per barrel to make it work.

On Feb. 23, the day before North Slope crude set its 52-week high of almost $128 per barrel, state Sens. Hollis French and Bill Wielechowski took turns peppering Revenue Commissioner Bryan Butcher about how much confidential information they could get from the producers during a hearing on Senate Bill 192.

SB 192, which was supposed to be the By-Partisans (Non)Working Group alternative to Gov. Sean Parnell’s oil tax reform bill, couldn’t make it out of the 16-member caucus for a vote before the session ended April 15.

Recriminations flew on April 16, as North Slope crude traded at $120.68 per barrel, roughly where the price stood on April 25 during the subsequent special session when ConocoPhillips executives took a lashing over having a profitable first quarter during which time the company paid $13 million per day in state and federal taxes as it made the more ballyhooed evil profit of $7 million per day.

On May 4, Wielechowski put out an easily debunked press release claiming the capital spending since Alaska’s Clear and Equitable Share passed in 2007 had created 18,209 jobs.

The only problem with that is state Labor Department statistics show 11,000 new jobs in the state from 2007 to 2011, with just more than half of those in the private sector.

All that is missing from this scene is Bluto Blutarsky jumping out of a chopped up 1964 Lincoln Continental and Kevin Bacon’s Chip Diller screaming “all is well!” just before he’s stampeded by a mob at the end of “Animal House.”

North Slope crude — which set another 52-week low June 21 at $92.44 per barrel — was trading close to that amount June 26 when the Fraser Institute released its annual survey of global oil and gas jurisdictions.

The good news is the Alaska onshore jurisdiction ranking improved from No. 83 in 2011 to No. 61 in 2012.

The bad news is that Alaska onshore is still next to last among 13 ranked U.S. jurisdictions, trailing only New York State, where anti-fracking hysteria is at its strongest, at No. 68.

A few results of the survey stand out when determining how Alaska stacks up against other U.S. jurisdictions. While 69 percent of respondents said Alaska’s fiscal terms either encourage investment or are not a deterrent, the results to the same question for Alaska’s outer continental shelf where ACES does not apply were 94 percent.

Here’s one that should catch the legislators’ eyes: When rating political stability, fully 28 percent of respondents described Alaska’s onshore environment as a mild or a strong deterrent to investment, placing it dead last in the U.S. in this measure. Only three of 13 U.S. jurisdictions even drew a response for “strong deterrent” in this category — Alaska (14 percent), California (6 percent) and New York (13 percent).

The final question asked was to estimate how much exploration and production would increase if the jurisdiction moved to “best practices” on royalties, environmental regulations, cost of regulatory compliance, etc.

A plurality of respondents, 43 percent, said Alaska’s onshore production would increase 20 percent to 50 percent if it moved to best practices. Another 7 percent said production and exploration could increase more than 100 percent.

Some of those best practices are outside the legislature’s control. Others, such as a stable political environment and competitive fiscal terms, are well within its power. Who gets to wield that power will be up to Alaskans this fall.